How far can new banking licenses be banked upon?
By Vaibhav Aggarwal
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Financial inclusion has been the priority of the government since quite some time. In order to achieve its target of total financial inclusion in the country by March 2011, the government has been adopting several steps. Amongst them was the proposal given by Finance Minister, Pranab Mukherjee during Budget 2010-11 that new banking licenses be granted to eligible corporates and non banking financial companies (NBFCs).

Banking regulator, Reserve Bank of India has been working on the issue for some time and has come up with draft guidelines for issuing fresh banking licenses.

The two major contenders in the race are NBFCs and corporates. NBFCs' already come under RBI regulation and that could prove to be a plus point for them but there is quite some difference in the level of strictness in regulation for banks and NBFCs. The fact that the level of regulation is quite less for NBFCs than banks might pose an issue for these companies in getting a bank license.

Adequate capital requirement is an important criterion to be eligible for obtaining a banking license. This is because an entity with strong capital base can aid better to the goal of financial inclusion. If that be the case, then corporate houses stand a fair chance of getting selected in the race.

But a disadvantage associated with handing a license to them lies in the fact that they might get biased towards their respective associate companies and subsidiary units and give lesser priority to other clients.

Also, there is a clause that any corporate house dealing in the realty sector cannot enter the banking segment.

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